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Pending Home Sales Drop After Months of Gains

Source: NY Times

Posted on 05 Jan 2010

The number of houses placed under contract fell sharply in November in the first drop in nearly a year, data released Tuesday show. It was the clearest sign yet that predictions of another downturn in real estate may become a reality.

The National Association of Realtors said that its pending home sales index plunged to 96 from a revised level of 114.3 in October. Analysts had been expecting a decline but predicted it would be much smaller.

In November of 2008, when the financial crisis was at its peak, the index was 83.1.

Pending sales rose throughout 2009, starting from a low of 80.4 in January. It proved a harbinger of both completed sales, which began climbing in April, and prices, which started rising over the summer.

Real estate’s modest recovery after years of decline was largely powered by concerns that the government’s $8,000 tax credit for first-time buyers would expire. When the credit was extended and broadened in November, the urgency to buy right away was greatly reduced.

While at least a small dip in sales this winter is almost assured, its depth and duration depends on whether that urgency will reignite as the credit once again heads toward its new expiration date, April 30.

Lawrence Yun, the association’s chief economist, is among the optimists.

“We expect another surge in the spring as more home buyers take advantage of affordable housing conditions before the tax credit expires,” he said in a statement.

Other analysts are less sure that will happen, saying that the credit’s effect on sales will diminish as the pool of eligible first-time buyers is used up. When move-up buyers are also eligible for the credit, these owners must sell first — no easy task.

The data indicate that the weakest parts of the country are the Northwest and Midwest, both of which fell 26 percent in November after adjusting for seasonal variations. The South dropped 15 percent while the West was off 3 percent.